How to Sell a Towing and Repossession Company

Where the calls come from

Tow companies earn money from several kinds of work, and buyers price each one differently. Police rotation calls come from a list maintained by a city, county or highway patrol, and the company takes accidents and abandoned vehicles in turn with other approved operators. Motor club and roadside assistance work comes through contracts with auto clubs, insurers and dispatch networks, at set rates, for jump starts, lockouts, tire changes and light tows. Private property impounds come from apartment complexes, shopping centers and businesses that sign an agreement with the company to remove unauthorized vehicles. Accident and heavy duty recovery pays well and arrives unevenly. Repossession work comes from banks, credit unions, finance companies and the forwarding companies that assign jobs to local agents.

A buyer wants revenue by source, by month, for at least two years. They want to know which sources make up most of the profit and which have a written agreement. Rotation list positions and many motor club contracts are tied to the company that earned them, and a number of them cannot simply be handed to a new owner. A buyer will ask what the sponsor needs to approve a transfer, how long that takes, and whether the company stays on the list while it does. Our post on recurring revenue and contracts explains why buyers pay more for revenue they can see coming.

The trucks and the yard

The fleet is the largest piece of equipment on the balance sheet, and the buyer will inspect it. They will want a list of each unit with year, make, type, mileage, condition, and whether it is owned or financed. Wreckers, flatbeds, wheel lifts, heavy duty rotators and service trucks each have a different working life, and a fleet where several trucks are near the end of it means the buyer is buying a replacement bill. Maintenance records, inspection reports and the dispatch software's job history all help show that the trucks are kept up. A fleet that produces steady revenue per truck beats a larger fleet that sits idle.

The yard is often worth more than the trucks to a buyer and also carries more risk. A storage lot with enough space, fencing, lighting, scales, an office and a proper entrance is hard to replace, because zoning and neighbors make it difficult to open a new one. A buyer will ask whether the property is owned or leased, what the zoning allows, and whether storage fees and lien sales are handled by the book. If the owner also owns the land, the buyer may want to purchase or lease it with the business, and our post on selling a business with real estate explains the choices. If the yard is leased, the lease becomes one of the main items in the deal.

Environmental condition matters in a yard where cars have leaked fluids for years. Buyers and lenders often order a site review, and the answer can change what they offer.

Drivers, dispatch and the people

Tow drivers work odd hours and are paid in different ways, by the hour, by the call or by commission. A buyer asks how many drivers the company has, how long each has stayed, who holds the proper licenses and endorsements, and how the pay is structured. Driving records and insurance eligibility matter a good deal in this business, since one driver with a bad record can push the cost of coverage up for the whole fleet. Rules about how drivers are classified vary by state, and your attorney confirms what applies to your company.

Dispatch is the second key role. A reliable dispatcher knows which driver is closest, which truck can handle the job and which customer will call back angry, and the buyer will want to meet that person. If the owner takes calls and dispatches personally, expect questions about who does it afterward. The owner dependency post describes how to hand that job to somebody before you list.

Repossession adds its own people. Recovery agents often hold their own licenses or registrations, and the lender accounts depend on the company's record for clean recoveries, correct paperwork and no complaints. Buyers ask how many accounts the company works for, how each one rates the company, and whether any audit findings or complaints were open. A repossession company that loses its largest lender account loses a large piece of revenue quickly, so the buyer reads those relationships as closely as a lease.

Insurance and the paperwork a buyer asks for

Towing insurance is specialized. A buyer wants to see garage liability, on-hook coverage for the vehicle being towed, cargo and storage coverage, commercial auto, workers' compensation and the claims history for the last several years. Claims matter because a lender looks at them when deciding whether the business can be financed, and a buyer's own insurer will price the policy off that history.

The rest of the file looks familiar. Business tax returns, monthly profit and loss statements, a balance sheet, fuel and maintenance costs by truck, payroll records, motor club and rotation agreements, repossession service agreements, the storage fee schedule, a log of vehicles sold at lien auction and the paperwork behind each one, and permits for the yard. Our financial statements post describes what clean books look like. Buyers also look hard at cash. Tow companies take a lot of cash and card payments at the gate, and if some of it was never recorded, the buyer will not pay for it.

What has to transfer

Truck titles and registrations, the operating authority and any state or local towing permits, the rotation list positions, motor club and lender agreements, the yard lease or deed, the insurance, the dispatch system and phone numbers, the company name and website, and the people. Permits and operating authority differ a great deal from place to place, and some are issued to the individual owner. Rules vary by state, and your attorney confirms what applies. The asset sale versus stock sale post explains why some buyers choose to buy the company itself so that permits stay in place.

What tends to sink a sale

The deals that fail share a few patterns. A rotation list or lender will not approve the new owner. The yard has a zoning or environmental problem that surfaces during review. The fleet is older than the owner admitted and needs replacing right away. The books do not show the cash. The owner is the dispatcher and the face of the company to the police and the lenders. A single lender or motor club makes up most of the profit and gives notice during the sale.

Getting ready

Read what the organizations that control your largest sources of work require when ownership changes, and make the calls once a buyer is serious, since they go better with a buyer waiting. Put each truck in a maintenance file. Record every payment. Clean up the yard and get a site review so you know what it will say before a buyer's reviewer does. Train a dispatcher who can run the day without you. Collect lender audit results and positive feedback in one place.

At Business Advisors of America we begin with a valuation from your own records, prepare what a buyer and a lender will want, and screen buyers before they learn who you are. If you are thinking about selling a towing and repossession company, a short call with us is a good place to begin.

This article shares our opinion and general information. It is not legal or tax advice. Always speak with a licensed attorney for legal advice, and a qualified tax professional for tax questions, before you act.